Jan. 3 (Bloomberg) -- The Turkish lira will gain about 2
percent this year to finish at 1.78 per dollar and the country’s
main ISE-100 index will reach 93,000 by year-end, according to
Is Investment Securities, Turkey’s largest brokerage house by
trading volume.

The lira ended last year 5.9 percent stronger against the
dollar, the third-biggest gain among emerging-market currencies
in Europe, the Middle East and Africa, after the Polish zloty
and the Hungarian forint. The currency traded 0.2 percent lower
against the dollar to 1.7819 at 2:21 p.m. today in Istanbul. The
ISE-100 rose 53 percent last year, the most since 2009, to end
at 78,208.44.

Is Investment, a unit of Turkiye Is Bankasi AS, the
nation’s largest bank by assets, wasn’t “positive” on Turkish
government bonds, it said in a news conference today in
Istanbul, where it unveiled its report on 2013 investment
strategies. The increase in global risk appetite and “hot”
money flows caused government bonds’ real interest rates to drop
to “unacceptable levels,” it said.

“Turkey should watch out for an increase in hot money
inflows following possible further upgrades,” Istanbul-based Is
Investment said in the report. “This is the major risk for the
Turkish economy.”

Yields in Turkey’s benchmark two-year notes dropped 483
basis points last year, the biggest fall since 2009. The yields
rose 12 basis points, or 0.12 percentage point, to 6.28 percent
at 2:34 p.m., after inflation slowed by less than analysts
expected in December.

Turkish Rates

Is Investment recommended investing in banks’ deposits in
the short term, variable-interest private-sector bonds for the
mid term and inflation-linked bonds for longer periods. It said
it didn’t recommend fixed-interest government bonds with mid-to-long-term maturities.

The weighted average interest rate for Turkish lira
deposits of as much as one-year maturities was 9.86 percent,
according to central bank data. The extra yield Turkish bank
bonds provided over Turkish government bonds ranged from 40 to
160 basis points last year, while non-bank corporate bonds had a
spread of 70 to 450 basis points, Is Investment said.

The firm expected at least one other ratings company to
upgrade Turkey to investment level this year. Fitch Ratings Ltd.
upgraded Turkey to the lowest investment grade BBB- on Nov. 5.